Holiday Donations and Tax Savings
Every year around this time, we start thinking about what we plan to do in terms of charitable contributions. There are a few organizations we like to support with cash and a few we like to support with time.
Regardless of how you decide to give, it’s important to do it the right way so you can save as much as possible on taxes. If the government is willing give you a tax break as you’re helping others, it makes no sense not to take advantage of it, right?
Also, as the holiday season approaches, you are going to be seeing an increase in solicitations for charitable donations. Do it right, keep track of your holiday donations, and you can get some of it back in the form of tax deductions.
It’s also important to note that you can only claim charitable contributions if you claim itemized deductions. If you usually get the standard tax deduction, you may be able to increase your tax deductions by donating so you can itemize and get the larger tax deduction. You don’t need to know the difference between standard tax deductions and itemized tax deductions. TurboTax figures out your deductions for you.
Save Your Receipts
If you make a donation and want a tax deduction, you are required to retain a record of that donation. It’s important to realize that acceptable records are those that are “official.” This means a bank record (such as a cancelled check, or the charity’s name for a debit or credit donation on the bank statement) or a receipt from the charity itself.
Keeping track of all the money you put into the buckets for those guys in Santa suits isn’t going to cut it. You need an actual receipt or bank record if you want the tax deduction.
You can also donate goods around the holidays. Donations to thrift stores and to charities that qualify as tax-exempt can be a great source of tax deductions. If you have your kids donate some of their toys just before the holidays (and the advent of new toys), you can deduct the fair market value on your taxes.
Be aware that for donations over a certain amount, you might need to attach extra paperwork, including sharing the amount you originally paid for the items. Understand that you don’t receive a tax deduction for the amount you paid for goods; you only receive a deduction for the current market value. Also, the items must be in good, usable condition. TurboTax ItsDeductible will calculate the fair market value of your donations.
When you donate the goods, don’t forget to ask for a receipt. Even when donating goods, you need a receipt from the charitable organization.
Track Your Mileage
If you volunteer your services for a charity this holiday season, you might be able to track the mileage driven in your efforts to help. You can’t receive a deduction for the value of the time you spend working for the charity, but you can get a deduction for the miles you drive.
If you are driving your car in an effort to benefit a charity, make sure that you keep track of the mileage, and then deduct it later. When using your own car, you can deduct 14 cents per mile. This can be one way to reduce your tax liability while doing good works.
Holiday donations can be a great way to help those in need this time of year and you can also get a tax benefit. You might as well get a financial benefit, even as you help others.